Logistics management: Integration of supply chain processes

Author: Donald J. Bowersox, David J. Closs
Translator: Lin Guolong et al.
Publisher:
Publishing Date: 2003-01-01
Features: This book provides a comprehensive and systematic explanation of the concepts, basic theories, and related business knowledge of logistics management, and vividly describes the excellent logistics management practices of developed countries in the West with a large number of examples. At the end of each chapter, the authors provide targeted thinking questions to help readers grasp key points and apply knowledge to various situations. The content of this book is highly operational, making it suitable for logistics professionals to further study and apply and reference in daily business activities, as well as for individuals in society who are interested in logistics for learning purposes.
Donald J. Bowersox, David J. Closs: Logistical Management: The Integrated Supply Chain Process ?1998 by McGraw-Hill, Inc. All rights reserved. For sale in mainland China. This Simplified Chinese edition of the book is published and distributed exclusively in mainland China by China Machine Press with the authorization of McGraw-Hill. Without the written permission of the publisher, no part of this book may be reproduced, copied, or excerpted in any form. All rights reserved. Infringement will be prosecuted.
Excerpt: Basic logistics service levels should be measured in the following aspects: (1) Availability; (2) Operational Performance; (3) Service Reliability. Availability means having inventory and being able to consistently meet customers' needs for materials or products. According to traditional models, the higher the inventory availability, the greater the required investment in inventory. Although current science and technology are providing new methods to achieve high availability of inventory without high inventory investment, availability development is still crucial due to its significant impact.
Operational performance refers to the process of handling from order intake to delivery. Operational performance involves delivery speed and delivery consistency. Naturally, the majority of customers expect fast delivery. However, if this speed is inconsistent, fast delivery holds little value. When a supplier promises next-day delivery but often delays, customers derive little benefit. Therefore, to achieve smooth operations, manufacturers generally first seek to achieve service consistency before improving delivery speed. Other aspects of operational performance are also important; a manufacturer's operational performance can be evaluated based on its flexibility in adapting to both normal and exceptional customer needs. Another aspect of operational performance is failure and recovery. Few manufacturers can promise perfect performance under all circumstances. Failure refers to potential failures in logistics performance, such as product damage, incorrect classification, or inaccurate documentation. When such failures occur, a manufacturer's performance can be assessed by how quickly it recovers. Operational performance relates to how a manufacturer handles various customer needs, including service failures that may occur daily.
Service reliability involves the quality attributes of logistics. The key to quality is to accurately measure availability and operational performance. Only through comprehensive performance measurement can it be determined whether overall logistics operations meet the desired service goals. To achieve service availability, the primary step is to identify the measurement methods to evaluate inventory availability and operational performance. Since logistics performance must continuously meet customer expectations, the primary commitment for management is to continuously improve. Logistics quality is hard-earned: it is the result of careful planning, training, comprehensive measurement, and continuous improvement.
To improve service performance, various goals must be established selectively. Some products are more important than others due to their significance to customers and their contribution to profits. In terms of customer expectations and needs, the basic logistics service level should be more realistic. In most cases, manufacturers face a marketing situation where customers have different sales potential and some may require different services. Therefore, managers must recognize that customers are different, and the services provided must match to accommodate unique preferences and purchasing potential.
Generally, when a manufacturer commits to average or basic customer service performance, it tends to be overly optimistic. This is because, compared to setting low-ambition goals from the start, the inability to consistently meet unrealistic high basic service goals can lead to more operational and customer issues. Additionally,ly making unrealistic promises about comprehensive service can weaken a manufacturer's ability to meet the special needs of high-potential customers.
### 2. Total Cost
In 1956, a specialized book on the economics of air transportation provided a new perspective on logistics costs. When attempting to explain why air transportation operates correctly under high costs, Lewis Clinton and Still described the concept of total cost, positioning it as including all expenses necessary to meet logistics needs. The authors illustrated this with an example of an electronic component distribution strategy, where the variable costs of air transportation from the factory directly to the customer were higher than the costs offset by reduced inventory and on-site warehousing. Their conclusion was that the logistics method of providing the service expected by customers at the lowest total cost involves concentrating inventory in a single warehouse and using air transportation for delivery. As reported about Brooklyn Brewery (see Case Study 1-1—translator's note), even today, the concept of total cost is still evolving. Although the concept of total cost is fundamental, it has not been applied to logistics analysis in the past. Perhaps this was due to the economic climate at the time and excessive deviation from the proposed methods, which led to widespread attention to the suggestion of total cost. The prevailing management methods reinforced by accounting and financial control at the time focused solely on achieving the lowest cost for each logistics function, with little or no attention to total cost. Managers devoted all their efforts to functional cost minimization, such as transportation, hoping that this effort would result in the lowest combined cost. The concept of total cost paved the way for examining how functional costs are interrelated. Subsequent refinements provided a more comprehensive understanding of the composition of logistics costs and confirmed the need for detailed functional cost analysis and dynamic cost calculation capabilities. However, in the 1990s, calculating costs for effective logistics processes would still be a challenge. Many long-standing accounting methods continued to hinder the resolution of total logistics cost issues.
Because achieving high levels of availability, operational performance, and reliability can be very costly, appropriate logistics cost expenditures must be related to the desired service performance. A significant management challenge arises from the fact that logistics costs and increased logistics performance are not proportionally related. A manufacturer that maintains high inventory to fulfill availability obligations for overnight delivery may face twice the logistics costs compared to a manufacturer with fewer obligations. The same manufacturer might waste profits by attempting to provide a service that customers may not need if it commits to overnight service with 100% consistency. Therefore, to achieve logistics leadership, the key is to master the art of matching one's capabilities with the expectations and needs of key customers. Commitments to customers are at the core of logistics strategy.
### 3. Conclusion
A typical enterprise should strive to develop and implement a comprehensive logistics capability to meet the expectations of key customers with realistic total cost expenditures. It is rare that a desired logistics strategy would consist solely of achieving the lowest cost or the highest possible customer service. A well-designed logistics system must be highly responsive to customers while controlling operational variability and minimizing inventory burdens. In the trade-off between cost/service measurement, significant progress has been made in developing management tools. The formation of a complete strategy requires the ability to estimate the costs needed to achieve the selected service level. However, unless examined from the perspective of the overall marketing strategy of the business unit and manufacturing strategy, the optional level of system performance is meaningless. Leading-edge manufacturers recognize that a well-designed and implemented logistics system can help achieve competitive advantages. Creating a cost-effective logistics system requires a combination of human and material resources, and it is difficult for a competitor to replicate it. Without considerable management and financial capabilities, as well as long-term training and development, it is hard to design and implement such a system. Generally, manufacturers that gain strategic advantages based on logistics capabilities determine their leading position in industry competition. Given this brief overview, it can be correctly evaluated why well-managed manufacturers invest a significant amount of effort in developing and continuously improving their logistics capabilities. The situation is not always the same. To better understand the foundation of logistics management research, it is helpful to learn how and why logistics has attracted the attention of the board of directors.
### 3. The Revival of Logistics
Before the 1950s, logistics companies engaged purely in functional-based logistics work, lacking any concept or theory of integrated logistics. The neglect of logistics during the development of marketing can be attributed to three key factors. First, before computer and quantitative technologies could be widely used, there was no reason to believe that the various functions of logistics could be integrated, or that such cross-functional integration would improve overall performance. In the following decade, logistics management methods began to evolve. The emerging information technology enriched the field of logistics. Early computer applications and quantitative techniques focused on improving the performance of specific logistics functions, such as order processing, forecasting, inventory control, and transportation. The significant potential for improvement sparked interest in cross-functional integration. The second major factor driving a change in the overall management attitude was the unstable economic climate. The continuous pressure to improve profits, which began in the early 1950s, along with fluctuating market conditions, persisted into the 1990s. This profit pressure made management focus on the inherent cost, avoidance, and reduction of costs. The improvement of productivity led to